A state-of-the-art review of corporate cash holding research

This study contributes to a better understanding of the determinants of corporate cash holdings and their effects on firm value. First, the extensive theoretical basis of corporate cash policies is disentangled. I distinguish two categories of theories. The first category comprises theories that stem from capital structure research, namely, the trade-off theory and the pecking-order theory. The second category includes theories that focus on agency conflicts. Second, this review identifies the most common proxies used in empirical research, aggregates them into general categories of determinants, and compares their predicted influences, according to different theories. In sum, ten general determinants, including firm size, growth opportunities, leverage, liquidity substitutes and corporate governance, are found to influence corporate cash holdings. Third, this article reviews the empirical evidence regarding what determines the level and market value of cash holdings, compares these observed associations to the predicted theoretical associations, and identifies avenues for future research. © 2017, Springer-Verlag GmbH Germany.